WASHINGTON - U.S. and European stock markets plunged sharply Wednesday as key economic indicators signaled the distinct possibility of a global recession in the next year.

Key indexes in New York fell more than 2% in midday trading, while markets in Europe sustained similar losses. The bellwether Dow Jones average of 30 key U.S. stocks was down more than 700 points at one point, reversing sharp gains on Tuesday after the United States announced it was delaying a new 10% tariff on key Chinese imports.

Analysts pointed to weak German and Chinese economic data as warning signs of a possible world economic slowdown, but most importantly, to a so-called yield curve inversion for interest rates on two- and 10-year U.S. Treasury notes.

Typically, interest rates on longer-term government bonds are higher than those for shorter periods of time. But when that interest rate phenomenon is reversed, as occurred Wednesday, it can be a sign that investors have worries about the immediate state of the U.S. economy, the world's largest, and are demanding a higher rate of return on the shorter-term notes.

The yield on a 10-year Treasury note briefly hit 1.622%, dropping below the 1.634% yield for a two-year bond, although the longer-term yields moved higher in later trading ahead of the two-year notes.

It was the first time such an interest rate inversion had occurred since 2005, two years before the start of the U.S. recession that was the country's worst economic downturn since the Great Depression of the 1930s. Millions of U.S. workers lost their jobs in the recession a decade ago, as well as their homes, when they no longer had enough money to make monthly home loan payments.

The bond interest rate inversion has preceded the last nine U.S. recessions over the last six decades, although the barometer is not a perfect indicator. No recession occurred in 1966, even though there had been an interest rate inversion.

China said its factory production was the weakest in 17 years, while Germany, Europe's most powerful economic engine, said its economic output shrank in the April-to-June period by one-tenth of a percentage point.

Fed Lowers Interest Rates as Expected, Leaves Door Open to More Cuts The Federal Reserve cited concerns about the global economy and muted U.S. inflation

The negative economic indicators could push central banks around the world to cut their key interest rates, following U.S. Federal Reserve policymakers who last month trimmed the key U.S. benchmark rate by a quarter of a percentage point.

One financial analyst, Joe Manimbo of Western Union Business Solutions, told investors in a note, "The so-called yield inversion signaled that the U.S. economy could be a little more than a year away from recession. Sinking yields are the bond market's way of pressuring the Fed to step on the monetary gas pedal and cut interest rates. Others worry that central bankers may be low on tools to ward off recession given that policy settings are already accommodative" with low interest rates.

U.S. President Donald Trump, who has touted a robust U.S. economy as a key reason voters should re-elect him in 2020, has frequently criticized the independent Federal Reserve Board for not cutting interest rates fast enough.

"They must cut rates bigger and faster," Trump said recently on Twitter.

The U.S. economy grew at an annual rate of 2.1% in the April-to-June period, down a percentage point from the first three months of the year.